Wall Street is on pace to break its long streak of weekly declines. The Dow posted its fifth gain in a row on Thursday, rising 1.6%, the S&P 500 climbed approximately 2%, while the tech-heavy Nasdaq Composite gained 2.7%. However, the market is still in correction territory. The S&P 500, Dow, and Nasdaq are down 14.9%, 10.2%, and 25%, respectively, year-to-date.
In addition, Goldman Sachs Group Inc. (GS) has predicted that the S&P 500 might decline to the 3,600 mark if an economic recession happens sometime over the next year. Even if a recession is avoided, there might be declines in the equity market due to the rising interest rates.
Analysts believe the stock market’s volatility could continue or even worsen. The CBOE Volatility Index (^VIX) is up about 58% this year. With these factors in mind, we think ETFs Cambria Tail Risk ETF (TAIL), Vanguard Utilities Index Fund (VPU), and Invesco S&P 500 High Dividend Low Volatility ETF (SPHD) might be solid bets to navigate a possible severe market pullback.
Cambria Tail Risk ETF (TAIL)
TAIL is an actively managed fund that aims to achieve its investment objective by investing in cash and U.S. government bonds and utilizing put options to mitigate significant downside market risk. The fund is designed to be a hedge against market volatility and declines.
As of May 26, TAIL had $461.01 million in net assets. Its 0.59% expense ratio is significantly lower than the 0.83% category average. The ETF’s top holdings include U.S. Treasury Bond 0.625 05/15/2030, which represent 77.34% of net assets, United States Treasury Inflation Indexed Bonds 0.125 07/15/2030, which represents 5.63% of net assets, and S&P 500 INDEX-SPX US 03/17/23 P4400, which accounts for 4.19% of net assets. It has a negative 0.51beta. Its NAV stands at $17.17. Its $0.07 annual dividend rate yields 0.38% on its current stock price. The ETF has declined 3.9% year-to-date but gained 0.7% over the past month to close yesterday’s trading session at $17.17. Over the past year, its fund flows have been $189.94 million, and $80.94 million over the past month.
TAIL’s strong fundamentals are reflected in its POWR Ratings. The ETF has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
TAIL has a Peer grade of A and a Trade and Buy & Hold grade of B. In the 120-ETF Alternative ETFs group, it is ranked #15. Click here to see the POWR Ratings for TAIL.
Vanguard Utilities Index Fund (VPU)
VPU delivers exposure to the domestic utility sector, a market sector that conventionally exhibits low volatility and features a distribution yield. The fund utilizes an indexing investment approach, tracking the performance of the MSCI US Investable Market Index (IMI)/Utilities 25/50 index.
As of April 30, VPU’s top holdings included NextEra Energy Inc. (NEE), with a 12.13% weighting in the fund, Duke Energy Corp. (DUK), with 7.38% of the fund, and Southern Co. (SO), with 6.77% of the fund. The fund’s total net assets stood at $7.80 billion. It had a $161.26 NAV as of May 26. Its $4.49 annual dividend yields 3.07% at its current stock price.
Over the past year, VPU’s fund flows have come in at $519.70 million, and $283.31 million over the past six months. The fund has gained 13.1% over the past year and 9.4% over the past three months to close yesterday’s trading session at $161.31. Furthermore, its 0.10% expense ratio is considerably lower than the 0.43% category average. It has a 0.52 beta.
It is no surprise that VPU has an overall A rating, which translates to Strong Buy in our POWR Rating system.
VPU has an A grade for Trade and Buy & Hold. It is ranked #2 of the 13 ETFs in the Utility ETFs group. The group is rated A. To see the additional POWR Rating for Peer for VPU, click here.
Invesco S&P 500 High Dividend Low Volatility ETF (SPHD)
SPHD tracks the S&P 500 Low Volatility High Dividend Index and usually invests at least 90% of its total assets in common stocks comprising the index. The index tries to pick stocks that have delivered high dividends with minimum turbulence.
As of May 26, the fund has a $47.59 NAV. Its 0.30% total expense ratio is substantially lower than the 1.22% category average. Its market value stands at $4.09 billion. The fund’s $1.60 annual dividend yields 3.65% at its current share price. As of May 25, SPHD’s top holdings included The Williams Companies, Inc. (WMB), with a 3.71% weighting in the fund, Kinder Morgan, Inc. (KMI), with a 3.20% weighting, and Chevron Corporation (CVX), with 3.09% weighting in the fund.
Over the past three months, SPHD’s fund flows have come in at $729.49 million, and $478.34 million over the past month. The ETF has gained 5.6% over the past year and 5.1% year-to-date to close yesterday’s trading session at $47.59. It has a 0.90 beta.
This promising prospect is reflected in SPHD’s POWR ratings. The ETF has an overall A rating, which equates to Strong Buy on our proprietary rating system.
SPHD has a Trade, Buy & Hold, and Peer grade of A. In the 86-ETF Large Cap Value ETFs group, it is ranked #6. The group is rated A. One can see SPHD’s ratings here.
TAIL shares were trading at $16.95 per share on Friday morning, down $0.22 (-1.28%). Year-to-date, TAIL has declined -4.92%, versus a -12.97% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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